Industrial Bank issued a notice before the Chinese Lunar
New Year to suspend mezzanine financing and supply-chain
financing in the real estate sector until the end of March,
according to the report, which cited an image of the notice
circulated online. China’s Lunar New Year holiday began Jan. 31
this year. A press officer at Fuzhou-based Industrial Bank said
he couldn’t immediately confirm the notice.

Shares of property developers fell on concern that the curb
may further limit their funding sources and push up borrowing
costs as Chinese policy makers crack down on shadow banking.
Industrial Bank may also restrict funding to local governments
that rely on less-regulated financing, according to Huang Jie,
an analyst at China International Capital Corp.

The move “is mainly attributable to falling risk appetite
rather than regulatory guidance,” Huang wrote in a research
note today. “We do not rule out that it will likely tighten
financing related to local governments in the future.”

Industrial Bank, part owned by Hang Seng Bank Ltd., has
been among the most aggressive in real estate and local
government financing. Exposure to those two sectors on and off
its balance sheet accounted for about a third of its total
assets by the end of June, the second-highest among China’s
publicly traded banks, according to CICC data.

Mezzanine financing in the property industry involves
giving a loan to a developer while an affiliate of the bank buys
a stake in the firm and sells it back at a later date. It is
often structured in a way that makes it look like an equity
investment rather than a loan.